- Risk sentiment deteriorated in Asian session amid tightening lockdown measures in several European countries
- Rising infections intensify the need for additional ECB support.
- EUR/USD struggling to break key chart resistance.
Risk sentiment declined through the Asian session as investors digested a record surge of covid infections in the US and Europe.
The safe haven US Dollar advanced .The risk-sensitive Australian, Norwegian and Canadian Dollars sank versus their major counterparts.
Gold dipped back below $1,900/oz. Silver tanked almost 2%, despite yields on US 10-year Treasuries sliding 2 basis points lower.
Australia’s ASX 200 and Japan’s Nikkei 225 index traded mildly lower, while China’s A50 index dropped over 2% after a fresh outbreak of asymptomatic Covid-19 cases unnerved investors.
Germany’s IFO Business Climate Index release for October and US new homes sales for September will be in focus.
Tightening Covid-19 Restrictions to Weigh on Euro
Rising covid cases in several European countries is threatening to derail the bloc’s fragile economic recovery and could hamper the performance of the growth-sensitive Euro.
Italy recorded 21,273 daily Covid-19 infections and imposed the strictest restrictions since lockdown in May. Meanwhile, Spanish Prime Minister Pedro Sanchez announced a national curfew as the 7-day moving average of cases surged past 12,000.
German Chancellor Angela Merkel and the mayors of Germany’s 11 largest cities agreed to introduce new restrictions for those municipalities deemed by the government as having a “high concentration” of infections. France registered over 50,000 new daily cases. 70% of intensive-care beds in the Paris region are taken up by coronavirus sufferers.
This sharp rise in cases is expected to pile pressure on the European Central Bank to do more to support the regional economy, particularly as high-frequency and economic data start showing the negative impact of the restrictions.
Euro-zone services PMI fell to 46.2 in October, worse that the 47 forecast, while all three mobility metrics – walking, driving and transit – continue to slide lower after peaking in early September.
Coronavirus developments will likely dictate the Euro’s path ahead of the ECB’s monetary policy meeting on October 29. Tighter restrictions could intensify the need for additional monetary support and in turn capping the upside of the region’s currency.